Dollar Strengthens to 1-Month High Against Yen on Retail Sales

The dollar rose to an almost one- month high versus the yen as the first increase in U.S. retail sales in four months sent Treasury yields to the highest since May, boosting the allure of dollar-denominated assets.

The Japanese currency weakened against all but one of its 16 major counterparts as stocks rallied and minutes of the Bank of Japan (8301)’s July meeting signaled policy makers are considering expanding stimulus. Sweden’s krona advanced as industrial production in June rose more than analysts estimated.

“The numbers haven’t materially affected what people expect from the Federal Reserve,” said Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc in Stamford Connecticut, referring to the central bank’s potential for further economic stimulus. “But dollar-yen liked it, and the dollar got a little support on the data versus the rest of the currencies.”

The dollar rose 0.5 percent to 78.74 yen at 5 p.m. in New York. It touched 78.93, the strongest since July 18. The yen fell 0.5 percent to 97.02 versus the euro. The U.S. currency rose 0.1 percent against the euro to $1.2322.

The benchmark 10-year yield climbed eight basis points, or 0.08 percentage point, to 1.74 percent, according to Bloomberg Bond Trader prices, the highest since May 29. The premium investors receive versus a similar maturity Japanese security increased to 94 basis points, the most since May.

IntercontinentalExchange Inc. (ICE)’s Dollar Index was 0.1 percent stronger at 82.530.

Real, Peso

Brazil’s real declined 0.3 percent to 2.0262 per U.S. dollar, its third consecutive loss, on speculation the acceleration of inflation will be short-lived, allowing the central bank to sustain the pace of cuts in borrowing costs.

“There’s a very explicit decision by the government” to keep the real weak, Standard & Poor’s analyst Sebastian Briozzo said at a Bloomberg Link event in Rio de Janeiro.

Brazil’s currency is this year’s worst performer among the world’s major currencies.

Colombia’s peso fell the most in two weeks after central bank co-director Cesar Vallejo said policy makers are considering doubling daily dollar purchases to $40 million to curb the currency’s rally which threatens to undermine local industry and farmers.

The peso slid 0.5 percent to 1,803.19 per U.S. dollar.

Sweden’s krona gained 0.3 percent to 8.2555 against the euro and was 0.2 percent firmer at 6.6997 versus the dollar.

Swedish industrial output rose an annual 1.1 percent and a monthly 0.4 percent in June. Analysts surveyed by Bloomberg expected annual production would fall 1.1 percent and predicted a monthly decline of 1 percent.

‘Open Mind’

The euro rose against most of its major peers after European Economic and Monetary Affairs Commissioner Olli Rehn signaled in a Bloomberg Television interview that the Spanish government has an “open mind” on requesting a sovereign bailout. “We stand ready to act if there is a request,” he said.

The shared currency gained against the dollar earlier as German growth slowed less than economists forecast and France unexpectedly avoided a contraction.

“The market had priced in the weak data coming from Europe, so I’m not expecting it to react too much,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “The euro will extend its recovery in the near term as risk assets continue to perform reasonably well and European equity markets recover ground.”

The euro may climb to $1.2445 in the next week, which could prompt more gains toward $1.26, Stannard said.

‘Modest Spike’

The shared currency has had the biggest decline this year among 10 major currencies tracked by Bloomberg Correlation- Weighted Indexes, falling 5.6 percent. The dollar has lost 0.1 percent and the yen slipped 2.7 percent. The New Zealand dollar climbed 4 percent while its Australian peer rose 3 percent.

“Within the broad sweep of data that we’ve seen over the course of the last month, it’s just a modest spike of light,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. (BK) in London. “There’s potential for further flight from the euro.”

The euro may end 2012 at about $1.17 or $1.18, Derrick said. That’s more bearish than the $1.22 median of 52 analyst and economist predictions compiled by Bloomberg.

“Investors are steadily losing confidence in the euro area,” Thomas Kressin, head of European foreign exchange at Pacific Investment Management Co., said in a Bloomberg Television on “Last Word” with Manus Cranny. There is a “high level of uncertainty” in the euro zone, he said.

Retail Sales

The 0.8 percent retail sales advance, the first gain in four months, followed a 0.7 percent decrease in June that was weaker than first reported, Commerce Department figures showed today in Washington. Economists projected a 0.3 percent rise, according to the median forecast in a Bloomberg survey.

“The U.S. data on the surface is stronger than expected and is leading the yield curve to rise and the dollar to strengthen,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York. “We live in a fixed-income universe and you can see the reaction, particularly in dollar-yen.”

The dollar may strengthen against the yen to its highest level in more than a month after breaking near-term resistance levels, Tom Fitzpatrick, chief technical analyst at Citigroup in New York, said in a telephone interview. The greenback could appreciate to 80 to 80.50 versus the Japanese currency, he said.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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